On The Fed's "Stunning" Finding Of Gold As An Inflation Predictor And The Subsequent Cover Up [Laughter]

The WSJ has an adorable article titled "The Fed's Laugh Track" in which it has done a word search for "laughter" and come up with some amusing results. Of course it would be far funnier if the WSJ had an article disclosing all the conversation transcripts between Jon Hilsenrath and the various Fed's presidents and executives. We won't hold our breath on that on. We would, however, like to present one of tha laugh tracks that the WSJ conveniently decided to drop. Not surprisingly, the topic of that particular transcript disclosure is, well, gold.

To wit, from the September 22, 2005 meeting transcript:

CHAIRMAN GREENSPAN. Several years ago I recall that we ran a correlation with the gold price against levels of inflation. We actually came out with some forecasting capability. Has that been rerun in recent years?

MS. [Karen] JOHNSON [(PhD. MIT, 1973)]. Not by us.

MR. STOCKTON: Not by me. I think we did that at your request. [Laughter] And we were not so convinced by the evidence that we’ve maintained that particular series for forecasting.

MR. REINHART. I think you actually alternated your requests—asking each one of us in turn—and we haven’t updated that in a long time.

CHAIRMAN GREENSPAN. The problem is that it kept coming out, for reasons I can’t understand, with some information capability. The reason I raise it, as you know, is that we have a big, fat spike here, and I don’t know what to make of it.

MS. JOHNSON. Yes, a 17-year high. I volunteer to run the gold price. [Laughter]

CHAIRMAN GREENSPAN. Provided that you don’t tell anybody you’re doing it!


This is indeed funny, because if the current Fed Chairman had only deferred to his predecessor, currently advising John Paulson to buy up every ounce of gold available, and to this transcript, he would figure out that the 30% surge in the price of gold in 2010 predicted precisely why there was a surging food price-based revolution in Tunisia yesterday and why the CPI confirmed the biggest jump in inflation in 18 months, and why food prices and corporate margins are about to prolapse. He also would not be at all confused when he told Congress back in June that he doesn't "fully understand movements in the gold price."

That said, we are confident the Federal Reserve will shortly come out with a statement that the first POMO/money-printing, pardon, monetary base-printing, driven revolution in Africa would have been much worse in the absence of QE2, and that Tunisia was really revolting against the possibility of deflation many years down the line.

As for Ms. Karen Johnson's kind suggestion to "run the gold price" we can assure her that she will not have to. After all CFTC just made sure that JPM will be able to continue to do that indefinitely [Laughter].

h/t Paul


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